Government policies failing business as energy costs set to rise 22% by 2020

Businesses that are 'medium-sized users of energy' currently face 21% higher energy costs as a result of Government policies, according to new research.

Published today, the research carried out by the Government also shows that by 2020 a business's energy costs will be 22% higher as a result of policies.

According to the Government, energy costs for most businesses are a small proportion of total business costs - less than 3% on average for the UK manufacturing sector.

Large energy-intensive users currently face energy costs that are on average between 1-14% higher as a result of policies and by 2020 the impact is estimated to be between 6-36%.

However, the estimates do not include measures that the Government is currently considering to reduce the impact of low-carbon policies on the costs of electricity for energy intensive industries, including a £250m package of compensation for industry to 2014-15.

Energy and Climate Change Secretary Ed Davey said: "The picture for businesses is less positive, which is why our new proposals to exempt and compensate the most energy intensive industries from certain policy impacts is crucial. Nothing would be gained from forcing industry, jobs and emissions abroad".

The Chancellor announced in the Budget that the Government will continue to provide support for energy-intensive industries to 2015-16, with the detail of this support to be confirmed through the spending review in June.

Commenting on the analysis, policy director at EEF, the manufacturer's association, Steve Radley, said: "This is a wake-up call. Policies are already adding 30% to business electricity prices, and this will rise to 50% by 2020 and 70% by 2030.

"Measures to shield the most energy intensive industries from a portion of the costs will make a difference but, unless we get a grip on spiralling policy costs, steeply rising electricity prices for the rest of the sector risk making the UK an increasingly unattractive location for industrial investment and undermining efforts to rebalance the economy," he added.

Contrary to the negative impact on businesses, the analysis claims that households are on average better off than they would have been in the absence of policies.

The Government claims that today's householders are paying on average £64 or 5% less for their gas and electricity bills as a result of energy and climate change policies compared to if no policies had existed, and in 2020 the net saving against the do-nothing scenario will reach £166 or 11%.

However, the estimates have been criticised with many saying that the predictions are based on a number of scenarios, including static gas prices and a significant uptake of energy efficient measures.